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Many retail executives are missing the mark when it comes to gauging the return on investment (ROI) of their Web efforts, often failing to take into account the considerable influence Internet sites have on offline purchases, according to a report released Tuesday by Forrester Research.
Forrester's findings dovetail with a similar report released earlier this week by Jupiter Media Metrix, which concluded that 69 percent of brick-and-click retailers are underestimating the benefits derived from their Web sites.
"The problem today is that even sophisticated retailers become myopic when it comes to calculating the ROI of selling online," said Forrester senior analyst Evie Black Dykema. "Since the returns on Internet investments extend beyond online sales alone, retailers must begin to measure company-wide ROI, which factors in the Web's impact on offline sales and operational efficiencies."
The Cambridge, Massachusetts-based research firm said brick-and-click marketers will find that their online technology expenditures will pay off if they take a "disciplined approach" to site investments and ROI analysis.
To this end, Forrester advised retailers to place value on their Internet arm as a marketing and service channel. Moreover, the study said vendors should use their online sites to boost the efficiency of their operations by cutting costs and improving margins through self-service, hands-free order taking, inexpensive retention marketing and the additional yield on liquidation.
Minimizing Risk
On a cautious note, Forrester warned that multichannel retailers risk damaging the company-wide ROI of selling online by investing either too much or too little in their Web presence.
With the cost of some online stores climbing towards the US$50 million range, the report said it is imperative for retailers to fine-tune their spending based upon the level of site sophistication and the types of goods being sold.
When calculating the cost of selling online, Forrester said a site's capital outlay will vary depending on its core commerce, merchandising and service capabilities. For instance, the implementation of an elaborate merchandising system may drive up the cost of a Web site 10 to 17 times more than a basic site with functionality in place to personalize multichannel sales.
Class Distinction
Different classes of products play distinctive roles in fueling a brick-and-click retailer's company-wide ROI, Forrester concluded.
For instance, the study said replenishment goods, such as health and beauty products, only require basic sites, because customers are more likely to simply reorder.
On the other hand, researched products, including consumer electronics and furniture, call for more technologically enhanced Web sites because those purchases are more complex. According to Forrester, these sites must be designed to guide consumers through each stage of the lengthy buying process.
The Big Picture
Meanwhile, convenience goods, such as apparel and toys, sell best through sophisticated online stores because an abundance of related content and fully honed merchandising tools will spur increased consumer spending.
"Multichannel retailers looking for ROI from their e-commerce investments without taking company-wide returns into consideration are like nomads in the desert hoping to happen upon a lake," said Forrester research director Lisa Allen. "Chances are it just won't happen."
Allen said that retailers have to recognize "the cost savings, efficiencies and incremental revenues" that an e-commerce site contributes to the company as a whole.
In its report Monday, Jupiter estimated that nearly two-thirds of the total Web
benefit for retailers will be in offline transactions influenced by online
research. To this end, Jupiter said that only Internet pure plays should
focus primarily on recognizing profits from their Web sites.
